What should the New Deal be like?

We are living in an age where 1% of the population have 30% of the wealth, and as those plutocrats grasp that wealth tightly and give their sons and daughters every opportunity to follow their own paths, they turn into aristocrats and so the system goes on. I don't say the government has to cut the incentives and collect equal amount of tax from the "biggies". Taxation already differs for those biggies contributing to economic growth. But on the other side of the coin there are those who can't make the ends meet. Minimum wages are just above the poverty line. So, how is it possible to solve the problem of excessive inequality in income distribution? What can be done to implement the necessities of being a social state?

Sep 25 2013:
We all know that socialism does not work because it lacks flexibility and incentive due to central control. It does however create, albeit low, even distribution of wealth.

While capitalism is better because it is flexible and creates incentives it also has an ugly side. Capitalism has two massive problems – it creates boom and bust cycles and extreme uneven distribution of wealth.

So, there must be a midpoint between socialism and capitalism that extracts the best of both. What we need is the free markets that are driven by the profit incentive while distributing the wealth more evenly among citizens.

To receive the benefit of a capitalist business you must be one of two things: an employee or a shareholder. Clearly if you are looking at wide income distribution the employee is bad model because a business can only employ a tiny proportion of the population. Therefore jobs are a bad way to even up income distribution.

However shareholders could be almost unlimited; especially if their shareholding is managed by a fund manager. Therefore an economic model that focuses on people becoming shareholders of capitalist businesses could act as distribution model where all participate in the wealth created.

A fund which is a variation of a “Sovereign Wealth Fund” could invest on behalf of all citizens at a rate that they contributed to the fund. For example at 9% of income. The compounding effect of such investing could even out the uneven distribution in approximately 50 years.

1. even distribution is not a valuable thing.
2. capitalism does not create boom and bust cycles. fractional reserve banking does.
3. there is no stable midpoint between socialism and capitalism. it is instable and tends toward socialism.
4. "a business can only employ a tiny proportion of the population" does not seem to make sense. majority of the population is employed.
5. having shares also mean taking risks. not everyone wants to bear risks.

Sep 23 2013:
I'm not sure if the view that "we survived the industrial revolution" isn't a bit short sighted. We are still in that revolution, it is inexorably moving a higher percentage of people into the unemployable category. Decades ago futurists predicted shorter working hours. We've got it, but it isn't evenly spread; some people are not working and others are working harder.
If we want a just society we need to find a way to make the growing mass of unemployed people feel that they are part of society, that they have value. That means restructuring our society.
The result if we don't do this will be a larger and larger mass of people who know that they have no value and will attack those that have the power. Who could blame them?
The New Deal requires us to reengineer society so that the boundary between wealth generating jobs and "good for society" jobs becomes blurred, and that anyone - by choice or circumstance - can work on public good projects for the benefit of us all. This cannot be a "make work" solution; but a wish by society to redirect the spare resource into projects that enhance all of our lives.

Sep 23 2013:
A solution to the purpose you have mentioned is really needed. Of course, the huge gap between wealth generating jobs and "good for society" jobs should be closed for good. Or else, we will see more of the scenarios like the Arab Spring in the western countries as well. It is just a matter of time and paitence of the society. But you are talking about a reengineering. What kind of reengineering are u taling about? How should it be implemented? Any more ideas?

Sep 24 2013:
I wish that I (or anyone) had a clear picture of what the re-engineered society would look like. I believe we have two possible paths. In one we ignore the realities and regard the unemployable as failures. That way lies increasing internal conflict and the need for the successful to live a gated life.
The other way is to look at the people attacking society now and ask why. There are almost no jobs available for people at the bottom of the bell curve of intelligence. They are humans and deserving of respect, but their conditions cause them to behave in ways which they lose respect and we can decide it is all their fault.
In my own country I can think of many projects which could be carried out by central government or by companies contracted to central or local government. The cost to the government of works carried out using humans rather than machines would be higher, but from that cost must be deducted the unemployment costs, the costs to society of a group of people who have nothing to do and feel worthless. Added back would be the value of a society where we each new that all of us can hold our heads up.
I am sure that this is only a first stab at an answer, and I don't pretend to know that answer. What I am sure of is that if we don't find it the problem will consume us.

Sep 26 2013:
I am not proposing to find the midpoint between socialism and capitalism. What I am seeking to achieve is wider ownership of truly commercial business and to achieve this I propose a single fund into which all contribute. Such a fund invests on behalf of all the people and therefore individuals are not exposed directly to market risk. Such a fund would be professional (non-government) managed and would be able to create a low risk profile due to its size, diversity and long term approach.

The fund could through its power mandate low debt to equity ratios in its businesses and reduce the boom bust cycles.

Boom and bust cycles are created by excessive credit growth and excessive credit growth is driven by the need for short term profit growth. Leverage is a method of increasing net earnings but to keep achieving profit growth quarter after quarter means more and more borrowing.

Currently markets reward risk taking and high gearing as a share price is simply put “The present value of the businesses growth opportunities”. If a company cannot increase its earnings it share price falls – this is wrong because it leads to disasters of many kinds, we need to stop rewarding high risk.

A fund however that is in the very long term (100 years +) could have the effect of smoothing boom bust cycles because it would run more conservative ratios.

Sep 26 2013:
De-legitimize employment as we once did with slavery and substitute it by partnership. This way any company was owned by the people who form them and would be democratically run in all decisions. The distribution of wealth and its unhealthy political influence would de-concentrate and help more people to share a decent lifestyle. As many resources of our given planet are limited, disproportional access, accumulation and possession of scarce ones will be limited by law unless the scarcity is either resolved or substituted. Debt based currencies will be declared illegal and the substitutionary system will by design neither allow 'money to work' nor to 'bet' with it. As for a start, this would already solve many of the existing and also of the uprising problems. And as those concepts are democratic - not communistic as many will name them - the common good of the majority of the people would replace what today is dominated by a minority of 'high finance'. To me, that nothing but fair!

Sep 24 2013:
good cherry picking. how about instead of the top %, you watched the total tax income per gdp? wow, a whole different picture. you could also look the total bottles of coca cola sold. that is what you get if you just pull numbers without thinking and actually understanding the theory.

one more try, but i don't have too much hope. correlation is not causation. that means that wherever you see a correlation, especially if the number of data points is low, you should also look for a reason. if you don't know the reason, you can't assign meaning to the correlation.

yet another attempt: you don't need reasoning to discard correlation. you need reasoning to assume anything else then correlation.

if you are adamant to get "Theory" in one line, here it is: economic progress is directly related to economic freedom. economic freedom is mainly composed of two things: strong stable property rights and low taxes. looking more closely reveals that these are actually the same thing.

the reference would be the 1000 pages long "man, economy and state" by murray rothbard. not recommended as a starter.

Sep 23 2013:
the original new deal was not new. people claiming other people's property in the name of something, and the ruling class trying to manage the country as their toy, this is with us since the beginning. the only thing that has been changed is the composition of the ruling class. earlier, it was a king. today, it is the mob of ignorant masses, and charismatic leaders of their choice.

a real new deal would be to realize that the real problem are not the "biggies", but this attitude. it would be to stop looking for excuses for looting and stop holding back the forerunners.

Sep 25 2013:
Scott,
Couldn't agree more. And replace it with a system that is devoid of
reasons, causes and seeds for corruption and so on.
In other words, begin with a new and just system.
The comments here go back and forth, or around and around debating
the same ole things that don't work, haven't worked and have been
failing for centuries.
It shows when people spout that there won't be any incentives at all.
What malarkey, but it sure worked on them so they repeat it in their
Pavlovian feeding frenzy of sound bites that make it sound as
if they are thinking when they aren't. It is just rote repeating.
Capitalism is about capitalizing on the pains, suffering, and mistakes of others,
along with capitalizing on what they don't know or are lied to about.
The dog doesn't wag the tail and the tail doesn't wag the dog.
It just runs in circles, trying to devour itself as fun and entertainment for
those who rule.

...Must be transcended altogether. There is no other system. A system that is fair and just would require humans to BE the Gods they pretend to be.....and then, they would not use the words fair and just for it would be the water they swim in.

There is Only One misperception that all violence stems from.
The turmoil of today's world works tirelessly as it points to our Misunderstanding.

Sep 24 2013:
Some aspects of this challenge are easier to address than others, which is why you hear and read so much more descriptive information about "what is" than you do about compelling and convincing solutions.

Different countries have different first steps they can take. Freeland and others have mentioned the usefulness of reducing cronyism and corruption where they exist. Another often offered strategy is to provide education to all children so that they not only reach a level of literacy that allows for civic participation but also skills useful for life and participation in the economy and the disposition to self-educate after their formal schooling. This is not a guarantee of finding stable employment, as we see very high rates of unemployment among educated youth, but those without education fare much worse in a poor economy than those with education.

Another idea that is often mentioned is partnership or at least communication between schools and training venues on the one hand and potential employers on the other to make sure that the education and training people receive is not useful only for their personal interest but also for potential employment.

Transportation that easily connects places where people live to places they work, go to school, or transact other aspects of personal business, health-related aspects of infrastructure, and so forth also contribute to quality of life, personal dignity, and productivity.

Would any of these strategies make sense for your situation in Turkey?

Sep 23 2013:
None are so blind as those who refuse to see .. If you read the details to the side of each country you will see that monetary freedom, business freedom, labor freedom, and fiscal freedom along with a balance of trade and a healthy balance of debits to GDP ratio.

Turkey is #69 on the chart. Click on Turkey and read the analysis. The data is from the Heritage Foundation in partnership with the Wall Street Journal. The little check to the far right will present the information as a graph.

As a rule a countries "health" is rated on their economic power.

The USA registered a loss of economic freedom for the fifth consecutive year, the U.S. has recorded its lowest Index score since 2000. Dynamic entrepreneurial growth is stifled by ever-more-bloated government and a trend toward cronyism that erodes the rule of law. More than three years after the end of recession in June 2009, the U.S. continues to suffer from policy choices that have led to the slowest recovery in 70 years. Businesses remain in a holding pattern, and unemployment is close to 8 percent officially and 20+% by most measures. Prospects for greater fiscal freedom are uncertain due to the scheduled expiration of previous cuts in income and payroll taxes and the imposition of new taxes associated with the 2010 health care law.

To recover the USA must make significant policy reforms, reduce the size of government, transform costly entitlement programs, and streamline regulations.

You ask what a "New Deal" should look like the chart provided by Pat is a road map to success.

Sep 24 2013:
Robert, your comment is pretty explanatory and helpful. But i dont agree that your comments at the bottom are valid for me. Also the mistake is mine for not saying at the beginning that i want full explanations, not some sarcastic, short comments. Thank you for explanations and thank u pat for link.

Sep 24 2013:
It was obvious to me he was not interested in the answer given. I'm not for sure what he is looking for but this was not it.

He is caught up in redistribution of wealth koolade that Obama and the socialist / communist are preaching. The .. yeah I know he worked for it ... but I deserve some of what he worked for ... I just don't want to have to earn it .... got a plan for that?

I have a answer for that ... but I would get kicked off of TED for stating it.

Sep 25 2013:
Just look around. Dont they take some of what we all share for granted? Think about the pollution they create, for instance. I dont approve of giving out an equal share for different burden of work. But some guy talked about soemthing like “Sovereign Wealth Fund”. I would expect this kind of ideas but unfortunately labelling people is seen as a solution.